Rate cut key to Aussie fall

Weakness in overseas markets on Friday put the Australian dollar on the back foot ahead of crucial economic events this week.

Poor corporate earnings results in the United States, as well as German and French disagreement on Europe’s debt problems, saw global equity markets sold-off on Friday, putting pressure on the local sharemarket and the currency ahead of today’s market opening.

In the US, the S&P 500 fell 1.66 per cent while the Euro Stoxx 50 shed 1.24 per cent.

National Australia Bank senior currency strategist Emma Lawson said that while there was some strength in the Aussie last week – which recovered back to $US1.03 – the substantial sell-off in global equity markets is likely to weigh against the currency in the lead-up to Wednesday’s quarterly inflation data from China.

“The main focus is likely to remain the inflation numbers, where the market will be looking for any indication of a rate cut," Ms Lawson said.

“The Aussie seems to be failing to move above $US1.04 as we remain with the expectation that the RBA will maintain an easing bias going forward."

The recent recovery in commodity prices should offset some of the weakness from rate-cut expectations, while anticipation of Chinese stimulus and a resurgence in China’s economy are also supportive.

UBS head of investment strategy and consulting George Boubouras said that stocks with earnings exposure to the US, such as
Westfield
, and anything connected with e-commerce, such as
Webjet
, have done well with a strong currency, but the high dollar is a massive challenge for most Australian companies.